Tuesday, November 26, 2013

Why corporate innovation is so difficult

We innovators need to learn to be careful with our language. Too often I hear people conflating words like innovation, invention and entrepreneurship. The fact is that these are all intertwined but subtly different words with very different challenges. To me, invention is the easiest. Everyone can be, and often is, an inventor. You may invent a new way of doing things, a new tool, a new insight or perspective. But mere invention doesn't necessarily mean that you "scale" it so others also benefit. No, for that you need "entrepreneurship" - the ability to take a good idea or invention and build a business around it. That's a slightly more difficult challenge. History is littered with good inventions or technologies that no one could build a business around, or where many tried and failed.

The benefit that entrepreneurs have over corporate innovators is that they must support and sustain only one idea. An entrepreneur should have one really good idea or invention and place all of his or her effort behind that idea. A corporate innovator should similarly place all of his or her effort behind an idea, but must confront the fact that there are hundreds of other existing products and services demanding attention and investment, as well as dozens of other potential ideas or avenues to pursue. This prioritization and resource allocation issue is one of the reasons that corporate innovation is so much more difficult that mere invention or becoming an entrepreneur.

In fact, there are at least four significant reasons why corporate innovation is so difficult:

Past success

Playing defense over offense

Resource allocation and project prioritization

Rigidity of systems and decision making

Let's look at each briefly, and then wonder how any innovation gets done in larger organizations at all.

Past Success

While it may seem strange that past success is an innovation barrier, past success creates expectations for revenues and profits into the future, and increases sensitivity to risk and failure. As an organization has success, it "learns" and codifies what made it successful. This locks in a way of doing business and a set of expectations about current and future success, which raises concerns about the risks of doing something new and different. The more successful a firm has been, the more difficult innovation, especially disruptive innovation, may become.

Playing Defense

All an entrepreneur has to worry about is gaining her first customer, and then the next one. As a new firm, every consumer is a prospect, and there's no infrastructure or product portfolio to support or defend. Entrepreneurs are by definition acquisitive. Larger firms, once they've achieve some sales success and have built a product portfolio, shift into defensive mode. They want to lock in their customers and defend from poaching. Yes, they'll talk about acquisition strategy, but that usually means upsell and cross-sell. When push comes to shove they'll defend their existing customer base rather than innovate to offer new solutions to new customers. The more defensive the mindset, the more the executive team wants to defend products and market share, the more difficult it will be to innovate.

Resource allocation / Project Prioritization

In both the case of the entrepreneur and the corporate innovator, there's only so much money, time and resource to go around. The entrepreneur is going to spend 100% of everything on one idea. Corporate innovators have to fight for exceptionally limited funds, since the vast majority of resources and dollars are going to flow first to existing products. Once those have been fully (and usually overly) allocated, corporate innovators fight over what's left. And executives are often left wondering how to choose between innovation projects. Training leads them to prefer projects with a high degree of probability for return, which leads to incremental solutions getting the funds. Unless there are clear strategic roles and a method to carefully prioritize risky projects, all resources and funding will flow to incremental innovation projects.

Decision Making and Corporate Processes

Imagine if you will the corporate innovator who has convinced the executive team that a disruptive innovation project is valuable and important, and has won funding and resources. Imagine as well that the team, against odds and through many distractions creates interesting, valuable ideas. Now imagine the innovation team trying to convince the development teams to build a new product, the IT teams to change software to support the new product, and training the sales and marketing teams to launch the new product. Of course all of this is going on while the corporation is supporting hundreds of products and projects. Corporate decision making and sustaining processes make it exceptionally hard to convert a good idea into a viable product. After all an entrepreneur can spin up a new product in her garage or completely outsource development, and support the business with Quickbooks. A large firm must make resource allocations, project decisions and software investments years in advance, which can hamper rapid change and innovation.

Tip your hat

So tip your hat to the corporate innovator. She's got to overcome a significant amount of inertia and risk, convince an executive team of the need for innovation, then fight to keep the scope of the project as large and as disruptive as possible. She's got to overcome existing allocations and fight for resources. She has to overcome cultural biases against risk and uncertainty. And, once she's succeeded at creating valuable, interesting ideas, she's only really begun to fight. With a good idea, she needs to convince the development team to make it, the IT team to support it, and the corporation to launch it.

Having been both an entrepreneur and a corporate innovator, I can tell you there's no contest. Corporate innovators have the toughest job. I'll always take the role where I am 100% responsible and control 100% of the decisions and resources and get to make up the processes and decisions as I go, rather than be bound by years of culture and decision making, in a culture that is trained to be risk adverse.

OVO is an innovation consulting firm working with Fortune 5000 firms to create repeatable,
sustainable innovation capabilities and disciplines in the "Front End" of Innovation. We provide innovation consulting and innovation training.